Overview: About High Risk Pools

Until the Patient Protection and Affordable Care Act (PPACA) of 2010 is fully implemented, the health insurance system in the United States will remain primarily a voluntary system.While there are various health insurance markets available to meet the needs of most people who wish to purchase health insurance, there still remain a few segments of the population that would like to be insured, but do not have access to coverage at all or at prices they can afford.

The health insurance market is comprised of two major components:

The group market provides health insurance plans to employers.Employers make the plans available to their employees who can choose whether or not to enroll themselves and their families.Employers generally pay a fairly substantial portion of the cost of the coverage, 50% or more.While an employer can set eligibility rules for participation, such as hours worked or employment status, group coverage cannot be denied to an employee or his/her dependents solely because of their health status.

The individual market provides insurance plans to persons who wish to purchase coverage for themselves or their dependents directly from an insurance company.Persons seeking individual coverage are generally those who work for an employer not providing health insurance coverage, do not meet the eligibility requirements for their employer’s plan, are self-employed or are not employed.Because of the voluntary nature of the individual health insurance market, health insurers require medical screening as part of the application process.They reserve the right to reject, rate-up, or impose exclusions for individuals who have pre-existing medical conditions.

PPACA prohibited insurers from using pre-existing condition exclusions for children under age 19 for plan years effective after September 23, 2010. PPACA also established federal high-risk pools in all states for persons with pre-existing conditions who have been uninsured for at least six months.More about the federal pools can be found on page 8.However, a large segment of the population will remain uninsurable until the guarantee issue provisions of PPACA are available to all US Citizens in 2014.This segment of the uninsured population is known as “uninsurable”, to distinguish them from persons who have no insurance for reasons other than their health status.Uninsurable individuals have sought coverage, but have been unable to purchase it because they have been rejected or because they have been offered coverage at unaffordable rates.Because of their health conditions, uninsurable individuals are the segment of the uninsured population that most needs health insurance coverage. Their inability to secure coverage puts them and their families at considerable physical and financial risk.

In order to address the problems of uninsurable individuals, thirty-five states have implemented state high-risk health insurance pools. State high-risk pools are nonprofit organizations created by state law to offer comprehensive health insurance to individuals who, in the absence of a statutory requirement for guaranteed access to individual health insurance coverage, would be unable to secure such coverage because of their health status.This approach to covering uninsurable individuals is referred to as a residual market mechanism. In most states, high-risk pools also serve as the mechanism for providing coverage for federally eligible individuals and those eligible for the federal Health Coverage Tax Credit Program.

A high-risk pool is typically an insurance program with its own health benefit plans, rates, administration, and management.Eligibility requirements determine who can enroll in the plan.The benefits are comprehensive and generally comparable to benefits available through medically underwritten individual or employer-based coverage in the state.

Participants pay a premium rate that is established based on a formula included in state law.The premium is generally a multiple of the average individual health insurance rate in the state, with a range that allows some flexibility to those who manage the plan.A typical high-risk pool rate is 125% to 200% of the average medically underwritten individual health insurance market rate, otherwise referred to as the standard risk rate.

Because the premium rates are high, a high-risk pool does not entirely solve the problem of affordability of coverage for uninsurable individuals.It is a valuable mechanism for the portion of the uninsurable population that can afford the premiums, but the high cost of the coverage can present a barrier to others.As a result, many states have adopted discount programs to assist low-income participants.In recent years federal grants have been available to assist states with reduced premium programs.

Because high-risk pool participants are persons with pre-existing health conditions, premium rates falling within the typical mandated ranges are not adequate to cover the cost of their health care and the administration of the program.As a result, additional funding sources are necessary to cover the costs of the program.States have adopted a wide range of approaches to subsidizing their high-risk pools.

An appointed Board of Directors generally provides the management of high-risk pools.It is common for Board membership to be defined in law to ensure a balanced representation from regulators, legislators, insurance carriers, medical professionals, and consumers.The Board establishes the rules under which the plan operates and enters into contracts for the administration of the plan.

High-risk pools are a common concept across the country.From state to state, they tend to share some similarities, but take on their own unique characteristics based on the insurance market, political climate, demographics, and economic conditions in the state in which they are formed.